The Motley Fool: Big-name brands can win even if stores fail
The North Face jackets. Timberland boots. Smartwool socks. Vans shoes. What do all of these have in common? They are all products owned by VF Corp. (NYSE: VFC), and combined with other outdoor and action products, they brought in more than $7.5 billion in sales last year.
Impressively, VF Corp.’s stock has posted average annual gains in the double digits over the past five, 10 and 15 years. And yet, over the past two years, the stock has fallen by double digits – presenting a unique opportunity for long-term investors: the chance to buy a safe and growing dividend that recently yielded 2.8 percent.
What’s to blame for the drop? The death of malls. As e-commerce gobbles up more and more of the retail pie, companies selling products via malls have suffered. The silver lining is that VF Corp.’s weakness comes from sales channels, not the brands themselves. Thus, VF needs to transform its business, building new sales channels.
It has already been doing that: The company’s direct-to-consumer (DTC) channel includes both VF-operated stores and e-commerce, and it has been growing steadily – annualized at over 11 percent – for the past five years.
Meanwhile, international customers can’t seem to get enough of VF’s brands. Back in 2014, the company posted $3.6 billion in international sales. Last year, that figure was $5.4 billion.
VF Corp. is worth considering for your portfolio.
Ask the Fool
Q: What are some basic things to look for in the financial statements of a company I might invest in? - B.W., Opelika, Alabama
A: The more you learn about a company, the more confidence you can have in your assessment of it and your ultimate investment decision. Reviewing and crunching numbers from its financial statements is smart.
On the balance sheet, if inventory levels or accounts receivable are growing faster than sales, that’s a worrisome sign. So is a rising debt level. Examine the statement of cash flows to see how cash is being generated. Generally, you want to see most cash coming from ongoing operations – products or services sold – and not from the issuance of debt or stock or the sale of property. Positive and growing free cash flow is good, too.
Review the company’s profit margins (gross, operating and net). Robust margins can be a sign of a higher-quality company, reflecting proprietary brands or technology it can charge more for.
You might examine return on equity and return on assets, too, comparing the company with its competitors. See which company is generating more earnings for each dollar invested in the business. Check previous years’ numbers, too, to see whether the trends are positive.
Learn more in “Reading Financial Reports for Dummies” by Lita Epstein (For Dummies, $23).
Q: When the Federal Reserve prints money, to whom do they give it? - G.H., Seattle
A: It’s technically the Bureau of Printing and Engraving that produces the paper currency, officially known as Federal Reserve notes. Much of it replaces existing money that gets too old and worn, and some of it enters circulation when the Federal Reserve buys U.S. Treasury bonds on the open market.
My Dumbest Investment
In 1980, I knew a few young stockbrokers who advised me to buy 100 shares of PepsiCo. I did, for around $25 or so per share. I was just out of school, and that was a lot of money to me. I bought the newspaper every day to check on its progress. (There was no easy internet stock tracking back then!)
I held on to the shares for a few months and then sold. Big mistake. Over the next few years, it split and kept growing. That has been a big regret. So now I have started investing again. I own about 15 stocks, and I’m doing well. - I.S., Lakeland, Florida
The Fool responds: It can be hard to be patient, but the ability to sit there and do nothing for long periods has served many great investors well. PepsiCo’s shares split 3-for-1 in 1986, and split 3-for-1 again in 1990, followed by a 2-for-1 split in 1996. If you’d hung on to your original 100 shares, they would have become 1,800 shares, and at a recent share price of about $117, they would be worth more than $210,000!
It can help to regularly ask yourself how confident you are in the future performance of your holdings. PepsiCo isn’t likely to grow like gangbusters, but consumers will probably keep drinking its beverages and eating its Frito-Lay snacks for many years to come.